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Alitalia Board To Vote On Etihad Investment Proposal

DOHA -- Etihad Airways is edging closer to an equity stake in beleaguered Italian carrier Alitalia, the companies said Sunday.

In a statement, the Abu Dhabi-based airline indicated that negotiations between it, Alitalia and the other affected stakeholders have concluded. The deal is still subject to final shareholder approval by Alitalia’s owners.

Etihad has been looking at buying a 49% stake in Alitalia as part of its equity alliance strategy. It previously invested in Air Berlin, Air Seychelles, Virgin Australia, Jet Airways, Air Serbia and Darwin Airline (now Etihad Regional). The strategy aims at quickly catching up in size to its larger competitors, such as Emirates, and building up local and regional networks in key markets, such as Europe, Asia and Australasia.

In a statement, Etihad said it will forward a letter detailing the conditions and the criteria for a proposed equity investment that had been negotiated with Alitalia and its stakeholders over the past months. Etihad did not specify how large its planned stake is, but ownership and control rules limit it to a 49.9% stake. After the Alitalia board accepts the final deal, final documentation must be completed.

"We are delighted to be able to move forward with this process and look forward to the successful conclusion of the proposed transaction with Alitalia,” Etihad CEO James Hogan said. “An equity investment in Alitalia will be beneficial not only for the both airlines, but, more importantly, it will give more choice and broader travel opportunities to business and leisure travellers into and out of Italy." Alitalia CEO Gabriele del Torchio said, “this investment will provide financial stability and confirms Alitalia's key strategic role as an infrastructure player in the travel and tourism industry in Italy for long-term growth."

Negotiations have been dragging on for months and followed the breakdown of talks between Alitalia and Air France-KLM last year, which also sought a stake in the airline. Although no conditions have been made public, Etihad is understood to have demanded significant cuts to loss making short-haul routes and a reduction in employment. It has also allegedly pushed for Alitalia’s debt to be lowered. Alitalia has been aiming at expanding its long haul network, but has so far lacked the funds to expand the wide body fleet.

The European Commission, already investigating among other deals whether Etihad’s existing equity investments are in line with ownership and control limits, has said that it will closely watch developments as far as Etihad and Alitalia are concerned.

Should the deal be finally confirmed, cooperation between Alitalia and Air Berlin, two of the largest European airlines, will also increase. However, the two are unlikely to be merged in the foreseeable future as they struggle to implement ongoing and new restructuring programs.